Shareholders can expect better year as dividend payments rise

Dividends are set to make a strong recovery in 2011 after a £2bn fall in payments to shareholders during 2010.

According to the latest Dividend Monitor from Capita Registrars, dividends should reach almost 60bn in 2011, an increase of nine per cent on last year once BP is excluded.

Oil giant BP's decision to axe dividend payments following the Gulf of Mexico disaster was blamed for a three per cent decline in UK dividend payments in 2010. BP is expected to reinstate dividend payments to shareholders this week.

Excluding BP, UK dividends actually rose by 7.5 per cent, with all the strength in the second half, said Capita.

Yorkshire's five biggest PLCs – Morrisons, Croda International, Drax, Provident Financial and Persimmon paid out 486m in dividend payments in 2010, up 5.7 per cent on the 459m paid out in 2009.

Yorkshire's biggest listed company, Bradford-based supermarket chain Morrisons paid out the biggest increase with a 49.6 per cent rise in the payout.

Morrisons' finance director Richard Pennycook said: "We are pleased to recognise shareholder loyalty and delighted that this has been acknowledged in the report.

"The strong growth in dividends that we have delivered in recent years reflects our success in driving sales and profits to record levels as more customers than ever before have enjoyed Morrisons fresh food and great value."

Natural chemicals company Snaith-based Croda was another strong performer with payments up by 23.4 per cent.

But payments from Drax, which runs the Drax power station near Selby, fell by 44.1 per cent after it paid a high dividend in 2009.

Persimmon returned to dividend payments for the first time since 2008, although they were modest at 10m.

Capita said that UK dividends shrank by 3.3 per cent in 2010 to 56.5bn, 2bn lower than 2009 when UK companies were hardest hit by the recession.

The cancellation of 5.4bn in dividends from BP was the main culprit, according to the latest Dividend Monitor, which analyses raw data on all UK dividends provided by Exchange Data International.

Most of the growth came in the second half of the year, which was up 13 per cent compared to two per cent growth in the first half.

The biggest increases came from FTSE 250 companies. Dividends from the FTSE 250 rose 16.3 per cent while the FTSE 100 rose 6.8 per cent.

However the FTSE 250 only pays nine per cent of all UK dividends, so its contribution makes little impact on the UK total. Its 5.1bn payment is dwarfed by the 49.8bn paid by the FTSE 100.

A total of 435 companies paid a dividend in 2010, compared to 417 in 2009. Some 342 companies increased or reinstated dividends, while only 107 cut or cancelled them.

In 2009, the number of dividend cutters easily outnumbered those returning more cash to shareholders.

For 2011, Capita is forecasting 59.6bn in dividend payments excluding BP.

If BP makes three dividend payments this year, totalling 3.4bn, then UK dividends overall would rise 11.5 per cent to 63.0bn for 2011.

Capita said that despite the strong run up in the market over the last year, UK equities are set to yield slightly more in 2011 than they did in 2010. Even without a renewed dividend from BP this year, Capita's forecast implies the market will return 4.2 per cent this year.

Adding the 3.4bn from BP would boost this to 4.4 per cent.

Capita said that if the FTSE 250 sustained higher dividend growth than the FTSE 100 in 2011, its 3.9 per cent forecast for the FTSE 250 dividend payments would prove conservative.

Charles Cryer, chief executive of Capita Registrars, said: "2010 finally saw a very broad-based recovery in dividends – the vast majority of companies and sectors returned more to shareholders, as the need to hoard cash in the face of tight credit and a weak economy receded.

"Even though share prices have rebounded, the income on equities is still looking very attractive, far ahead of bonds and cash. After a really tough two years, income investors can look forward to a much better year for dividends in 2011. "

A heavy reliance on first the banks, then the oil companies, has meant a tough two years for investors. Capita said the heavy dependence on a few companies for dividends exposes investors to risk.

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